Bharti Airtel's board of directors approved a rights issue worth up to Rs 21,000 crore on Sunday, at a price of Rs 535 per share, as the firm wants to expand its network and prepare for the launch of 5G services. In Monday's early trades on the BSE, Airtel shares were trading over 1% higher.
For every 14 shares owned in the telecom firm, shareholders will be able to purchase one more share. The deadlines aren't specified, but 25% will be paid up front, with the remainder called as needed over the next 36 months. Sunil Mittal, the founder-chairman of Bharti Airtel, and others from the founder group will also take part in the stock purchase.
Bharti Airtel Rights Issue Details
The Board of Directors approved the issuance of equity shares of the Company with a face value of Rs. 5/- each on a rights basis to eligible equity shareholders of the Company as of the record date in an amount up to Rs. 21,000 Crores.
The Board approved the following terms of the Issue:
(a) Price of the Rights Issue: Rs. 535 per fully paid-up equity share (plus a premium of Rs. 530 per equity share).
(b) Payment terms for the Issue Price: 25% on application, with the remainder paid in two additional calls as determined by the Board/Committee of the Board from time to time based on the Company's needs over a 36-month period.
(c) Ratio of Rights Entitlement: 1 equity share for every 14 equity shares held by eligible shareholders on the record date.
Motilal Oswal on Bharti Airtel
This capital raise is surprising, according to brokerage company Motilal Oswal, because management has maintained in recent calls that its leverage and liquidity situation is comfortable and self-sustaining, with good FCF creation in all verticals, signalling no extra capital demand.
"The unexpected capital raise may cause a negative reaction in the short term, but we see a good earnings growth opportunity over the next 12 months," the brokerage said.
The firm has a ‘Buy' recommendation with a target price of 720 per share on the large-scale opportunity in the next 2-4 quarters, and Bharti Airtel is well-positioned to benefit.
Emkay Global on Bharti Airtel
After rate hikes and amid the potential of a duopolistic market following major weakening of VIL's financial position, another brokerage, Emkay Global, claimed in a report on Saturday that Airtel stock had outperformed (by 22-37bps) the Sensex in the last 2-3 years. The stock has a ‘Buy' rating and a target price of Rs 730.
Jefferies maintained a Buy call with a target price of Rs 685 a share, citing the Rs 21000 crore rights offering as a positive factor. According to the brokerage, the corporation may need funds for 5G auctions in the coming three years.
The issuance, which is priced at a 10% discount to the current market price, rewards existing shareholders and serves as a reminder that standalone FCF creation is weak, according to the company.
CLSA on Bharti Airtel
Given the company's outstanding market share performance, CLSA also maintained a Buy stance with a target price of Rs 780 per share.
Rights Issue and Call options, according to the brokerage, create headroom, keeping gearing comfortable, especially if the government moves on with the 5G spectrum auction.
In order to raise funds, a corporation would issue a rights issue. If current owners agree to purchase extra shares, a firm can use the money to pay off debt, acquire assets, or expand without having to take out a bank loan. Shares of the company were seen trading high by 2.22% at Rs 608 on NSE at 10.13 am IST.